If the Federal Reserve wants to increase the money supply, it should:

Question

If the Federal Reserve wants to increase the money supply, it should:

A. increase reserve requirements.

B. increase the discount rate.

C. conduct open-market purchases.

D. conduct open-market sales.

E. raise interest rates.

Answer 1

C. conduct open-market purchases.

It purchases gov bonds or T-bills and pays money in exchange, thus money-supply on-hand of public is increased.

Answer 2

C. conduct open-market purchases.

It purchases gov bonds or T-bills and pays by crediting banks reserves account or cash in exchange, thus money-supply with public is increases as more currency is available or as with higher reserves create more loans and hence more checkable deposits.